In the business world, the origin story is as important to a company as it is to comic book heroes. Nike loves to talk about how co-founder and Oregon track coach Bill Bowerman created the outsole for what would become its famous running shoes by using his wife’s waffle iron. In the case of Facebook, the origin story even led to an Oscar-winning movie that made us think that a million dollars isn’t cool.
Even among such legendary tales, the beginnings of cashmere company Naadam stand out. Four years ago, founder and CEO Matt Scanlan, having left a job in venture capital, decided to travel with a friend who was visiting his girlfriend in Mongolia. By the time Scanlan arrived, his buddy had already broken up with his girl but they still decided to see what the country had to offer. So they took what they thought would be a day trip to the Gobi Desert to visit nomadic herders. That day trip turned into three weeks in what can only be described as the middle of nowhere. Flights were missed, strange goat’s milk vodka was drank, and a business idea was hatched.
The goats in the area where Scanlan found himself happened to produce some of the finest cashmere in the world, prized for both the length and the thinness of the fibers. Scanlan’s idea was to cut out the traders who were acting as middlemen—and not necessarily acting in the herder’s best interests—by paying a higher price for the cashmere. Since he was buying directly from the source and avoiding the typical markup costs, Scanlan had money to reinvest into a non-profit arm that provided veterinary care for the herders’ animals so that they, in turn, would be able to continue supplying him with high-quality cashmere and also have the money and resources they needed to maintain their unique culture and lifestyle.
The cashmere was then used to produce Naadam’s clothes, a line of men’s and women’s sweaters, jackets, and accessories. It’s a unique business concept. Companies like Toms donate goods like shoes to people in need. But what Naadam is doing isn’t charity. They’re working to empower people at the bottom of the supply chain and make them more vested in a business that, ideally, works like a virtuous cycle.
We spoke to Scanlan to find out more about that crazy first trip, the time he drove $3 million in cash to the Gobi desert, and what he’s learned from goat herders.
How did you start Naadam?
I didn’t love fashion. I didn’t have an interest in design. My background was in venture capital and I got sick of it. I hated taking orders from people so I quit. I linked up with a buddy who was dating a girl who was working for the World Bank on this livestock insurance program in Mongolia. He said I’m headed to Mongolia if you want to come. I said sure, whatever. What else do I have to do?
What was it like when you first arrived?
We get there and we’re staying in a hostel in Ulaanbaatar, which is the capital of Mongolia. It’s like going to another planet. We met this guy and he had some friends who were in the cashmere trade and they were going to head out to the country and maybe they would take us out there. I’m thinking it’s like taking a trip to Connecticut or something. That was not the case. We drove for 20 hours straight, off-roading. We’re like shit, what is going on? We didn’t sign up for this. We’re in the middle of nowhere. We haven’t seen electricity poles or homes or roads. We end up at a ger, which is like a yurt, that nomadic herding communities live in. We spend the night there, drinking goat’s milk vodka. The next day comes around and we’re we’re like, “O.K., cool, this was beautiful, thank you, we’ll take our trip home now.” They said we’re here for three weeks so you can come with us or find another way home, which would have been virtually impossible.
What did you do?
After the initial shock of that, we settled in and decided to acclimate. I learned how to ride a horse. I learned how to ride a motorcycle. I was milking goats by the end of it. We really dug in. We’d eat mutton and marmite all day and that’s it.
We had a translator so we started asking questions to figure out what this life is like [for the herders]. They exist through animal husbandry. They herd animals and then sell the fiber. They happen to have goats and the goats produce cashmere. Once we heard that it was like this “A-ha” moment. This is where this stuff comes from. How come no one says that? Then we started figuring out how we could work with them.
What was the plan?
We end up thinking through this process of supporting them with microeconomic development, meaning we would find ways to invest in them that influenced their livelihood and ultimately impacted the local economy. We wouldn’t be giving a fish, but we’d be giving a fishing rod. We’d be creating sustainability for them in a lifestyle that was very unstable. Climate change is changing a lot for them. It’s negative 40 degrees in the winter. A blizzard can come through and drop 14 feet of snow. That only happens every so often but if it does, it kills everything.
Then we realized we should look at this like we were raising money for a venture capital fund. We would take money and invest in things for these herders—things that we heard they were asking for, like a veterinary program or a breeding program. When you impact the quality of the animal you come away with a more valuable material for them to sell so they can charge more for it and make more money. In that way we could totally change their livelihood. What it then quickly became was, we’re at the source, we don’t have to go through traders to buy this stuff. Why don’t we just buy it directly from you guys? Then we’ll take a percentage of the profit and use it to fund the nonprofit that invests in veterinary, breeding, and insurance programs that positively impact the value of the material that we end up buying. It becomes this totally cyclical supply chain and business. That’s basically how our business model works today. The relationships we made on that original trip have lasted ever since.
Tell me about the time you bought 40 tons of cashmere.
In June I was in Mongolia and I took $3 million in cash and drove out into the middle of the Gobi desert and bought 40 tons of cashmere. I actually had to go to six different banks [in Mongolia] to take out all the cash and it was all in plastic shopping bags in the back of a Land Cruiser. You don’t need protection. You don’t need guns.
The process of how we actually purchase the material takes our business to an entirely different level. In the Gobi desert there are auctions held by the government. The mayors of the town work with the herders and traders and set a price and that price is what traders then buy at. Then the trader will purchase it and put a margin on it and sell it somewhere else. We come into these auctions and we speak to the mayor and say we’re going to support every herder in your area, which could be a couple hundred miles, with veterinary and breeding programs. These traders are coming in and they’re going to try and set the price at $25 per kilogram. We want you to set it at $31 and we don’t want you to go a dollar lower. If we rig these auctions and price fix above where traders want to come in, then they get pushed out. We increase the value of the material for the herders, but then we don’t ever have to mark it up. We still buy at a price that is lower than the rest of the world.
Who are these traders that are getting cutting out?
They’re not locals. These are guys who show up in really nice cars and work for big trading companies and they’ve been going to this region for a really long time. They utilize misinformation and a lack of communication to say, “We know the market. We’re the big guys and we’re telling you that this [price] is what it is.” We’re saying we can do things differently.
What was the herders’ initial reaction to your plan?
It wasn’t something where I came and was like “I’m doing this; I’m doing that.” It really came together organically. When I first showed up with the nonprofit idea, they were like we’ll believe it when we see it. I finally brought on local partners that other people trusted. And if I could convince them then other people trusted us. Once we got a good amount of money into the process, everything shifted. The nonprofit program we built this year spent about $150,000 building veterinary programs that will exist for the next five years. In the first year, we inoculated 250,000 goats. All of a sudden we’ve built the largest privately-funded nonprofit program in this region’s history. We’ve established something life-changing. If they were to try to buy that [care], it would cost about $1,200 which is between 30-45% of their annual income. The excess money [the herders save] only has one place to go, back into the local economy, building better schools, better hospitals. Outside of that, 60,000 new baby goats will be born next year. Baby cashmere is more valuable than regular cashmere, which means the families that own the baby goats, which will be most of them, are going to make more money next year than they did this year. That’s just part of it. The other side is starting a clothing company.
What is the design sensibility of the clothes you create?
We want to create elevated essentials. Things that you can live in and wear all the time that are seasonless. You don’t buy them for the trend but because it will last 10 years, you will wear it every fall and every spring. It has just enough of a contemporary twist that you end up buying something that is more elevated. There is a real design influence in the detail but the silhouettes are inherently essential, made to be worn all the time.
What’s the region called where you buy cashmere?
It’s in the Gobi desert. I don’t tell anyone exactly where we go.
So if your road trip had gone northeast instead of north, for example, things could have ended up totally different?
Totally different. We just got lucky.
What are brands like Uniqlo doing that allows them to offer cheaper cashmere?
It’s a very different thing. There is wastage throughout the process of creating a yarn; 12-15% of your overall material turns into garbage. Companies buy up all that wastage and they create yarns out of it. Those yarns cost $70/kg once they’re spun. Ours cost $150. But that type of cashmere is disposable. Go buy a cashmere sweater from Uniqlo it’ll have a hole in it by the end of the week I promise you. What we’re trying to say is the value of this material is much higher.
What have you learned from working with these herders?
Their lifestyle has been passed down for a thousand years. Virtually nothing has changed. Their culture and heritage are linked to things like honor and respect, really beautiful values. The most startling thing for me early on was understanding that. The things we were weighing were different. Being respected is much more important than how much money you have. That was pretty impressive. It’s also hard to believe how harsh these winters are. The fact that humans can exist and flourish in an environment like that is remarkable.